On November 5, 2026, the IRS released Revenue Procedure 2026-35 (IR-2026-133). It sets the inflation-adjusted amounts for tax year 2027. Two of those numbers matter most for real estate investors who use real estate professional status and cost segregation: the section 461(l) excess business loss threshold, and the section 199A qualified business income thresholds.
For taxable years beginning in 2027, the excess business loss threshold is $264,000 ($528,000 on a joint return). The QBI threshold is $416,600 for joint returns, $208,325 for married filing separately, and $208,300 for everyone else.
These figures apply to 2027 returns, which most people file in 2028. Your 2026 return still uses the 2026 amounts. For how the excess business loss cap stacks with REPS and cost segregation in a loss year, see REPS, cost segregation, and the 2026 excess business loss cap. For REPS basics, see REPS and passive losses.
What changed from 2026
| Item | 2026 (Rev. Proc. 2025-32) | 2027 (Rev. Proc. 2026-35) |
|---|---|---|
| Excess business loss, single / other | $256,000 | $264,000 |
| Excess business loss, married filing jointly | $512,000 | $528,000 |
| QBI threshold, married filing jointly | $403,500 | $416,600 |
| QBI phase-in top, married filing jointly | $553,500 | $566,600 |
| QBI threshold, married filing separately | $201,775 | $208,325 |
| QBI phase-in top, married filing separately | $276,775 | $283,325 |
| QBI threshold, all other returns | $201,750 | $208,300 |
| QBI phase-in top, all other returns | $276,750 | $283,300 |
| §199A(i) minimum QBI to be an applicable taxpayer | $1,000 | $1,030 |
| §199A(i) minimum deduction for active QBI | $400 | $415 |
| Section 179 expensing limit | $2,560,000 | $2,640,000 |
| Section 179 phase-out starts above | $4,090,000 | $4,230,000 |
| Section 179 SUV limit | $32,000 | $33,100 |
The 2026 EBL and QBI figures come from Rev. Proc. 2025-32. The 2027 figures come from Rev. Proc. 2026-35 sections .28, .26, and .33. The §199A(i) amounts for 2026 are the statute figures of $1,000 and $400. Rev. Proc. 2025-32 says those amounts are adjusted for inflation for taxable years beginning after 2026, and Rev. Proc. 2026-35 sets the 2027 figures.
Why the excess business loss number matters after REPS
Real estate professional status under IRC §469(c)(7) can make rental losses nonpassive for the year you qualify, if you also materially participate. That is what lets a cost segregation loss offset W-2 wages or other nonpassive income on the federal return.
Section 461(l) sits after the passive rules. Once a loss is allowed under section 469, a noncorporate taxpayer still cannot use more net business loss than the annual threshold in a single year. The excess carries forward as a net operating loss under §461(l)(2).
W-2 wages do not expand the room under the cap. Employee income and deductions are left out of the §461(l) computation. So a high W-2 does not "cover" a $700,000 rental loss. REPS gets you to the gate. The threshold decides how much clears it this year.
Here is a hypothetical for 2027, not a client result. You file jointly, you qualify for REPS, you materially participate, and cost segregation plus 100% bonus depreciation produce a $700,000 net rental loss after other rental income.
| Step | Amount |
|---|---|
| Net rental loss after REPS / material participation | $700,000 |
| 2027 joint §461(l) threshold | $528,000 |
| Deductible against other income this year (before other limits) | $528,000 |
| Carried forward as NOL | $172,000 |
Compared with the same facts in 2026, the joint threshold was $512,000, so $16,000 more of that loss clears in 2027. The rest is still an NOL, subject to the usual NOL rules, including the 80% of taxable income limit that applies to many post-2017 NOLs.
The 2027 QBI thresholds
Section 199A lets you deduct up to 20% of qualified business income from a qualified trade or business. Above the threshold, the deduction for each business phases toward a wage and property cap. Above the top of the phase-in range, the cap applies in full.
For taxable years beginning in 2027, Rev. Proc. 2026-35 §3.28 sets:
| Filing status | Threshold | Top of phase-in range |
|---|---|---|
| Married filing jointly | $416,600 | $566,600 |
| Married filing separately | $208,325 | $283,325 |
| All other returns | $208,300 | $283,300 |
The wage and property cap is the greater of 50% of W-2 wages, or 25% of W-2 wages plus 2.5% of the unadjusted basis of qualified property. A residential rental with no W-2 wages often relies on the 2.5% of building basis. Land does not count.
REPS and the QBI rental safe harbor are different tests. REPS is about whether rental losses are passive. The QBI rental safe harbor under Rev. Proc. 2019-38 is about whether rental income can get the 20% deduction. A big REPS loss year can also create negative QBI that carries forward and reduces the deduction in later profitable years.
Starting in 2026, §199A(i) also sets a minimum deduction for applicable taxpayers with enough active qualified business income. For 2027 that floor is $415 once you have at least $1,030 of QBI from active qualified businesses. Active means you materially participate under §469(h).
California does not conform to §199A, so there is no California QBI deduction. See the QBI safe harbor page for the California line.
Section 179 next to cost segregation
Some components of a building can take section 179 expensing instead of, or alongside, bonus depreciation, depending on the facts and the election. For 2027, Rev. Proc. 2026-35 raises the section 179 dollar limit to $2,640,000, with the phase-out starting when §179 property placed in service exceeds $4,230,000. The SUV limit is $33,100.
Section 179 does not bypass REPS or §461(l). A large §179 deduction that clears the passive rules still counts toward the excess business loss computation. California conformity on §179 and bonus depreciation is its own analysis. See California bonus depreciation nonconformity.
What this does not change
- The REPS hour tests stay the same. More than 750 hours and more than half of your trade-or-business hours in real property trades or businesses, under §469(c)(7)(B).
- Material participation is still required after you qualify. See material participation vs active participation.
- California still does not follow federal REPS. Rental activities stay passive for California purposes. See California real estate professional status and FTB 3801.
- Your 2026 year-end checklist still runs on 2026 numbers. Hours for 2026 have to exist by December 31, 2026. See REPS year-end checklist for 2026.
Planning notes for late 2026 and 2027
If you are deciding whether to place a property in service in late 2026 or early 2027, the §461(l) threshold is one input, not the only one. Bonus depreciation, your REPS hours for that year, material participation, California adjustments, and the NOL carryforward all move together.
Stacking cost segregation studies on several buildings in one year is still how investors run into the cap. Spreading placed-in-service dates across years can matter more than the $16,000 joint bump from 2026 to 2027.
Keep a contemporaneous time log if you are claiming REPS. The threshold only helps losses that already cleared section 469.
Frequently asked questions
What is the 2027 excess business loss limit?
For taxable years beginning in 2027, Rev. Proc. 2026-35 sets the section 461(l) threshold at $264,000, or $528,000 for married taxpayers filing jointly. Amounts above that carry forward as a net operating loss.
Does real estate professional status bypass the excess business loss limit?
No. REPS can make rental losses nonpassive under section 469. Section 461(l) applies after the passive rules. Qualifying for REPS does not raise or remove the annual threshold.
What are the 2027 QBI thresholds?
Rev. Proc. 2026-35 sets the section 199A threshold at $416,600 for joint returns ($566,600 at the top of the phase-in range), $208,325 for married filing separately ($283,325 at the top), and $208,300 for all other returns ($283,300 at the top).
Do these 2027 numbers apply to my 2026 tax return?
No. The 2027 amounts generally apply to taxable years beginning in 2027. Your 2026 return still uses the 2026 figures from Rev. Proc. 2025-32, including the $256,000 / $512,000 excess business loss thresholds.
How do the 2027 numbers interact with cost segregation?
Cost segregation plus 100% bonus depreciation can create a large first-year loss. If you qualify for REPS and materially participate, that loss can offset other income up to the §461(l) threshold. The rest carries forward as an NOL. The higher 2027 threshold gives a little more room than 2026, but it does not remove the cap.
Does California use these federal thresholds?
California does not follow federal REPS, and it does not conform to the federal QBI deduction. California also has its own picture on bonus depreciation and excess business losses. Run a California projection separately from the federal one.
Talk it through with us
Bring last year's return, a draft of your 2026 hours log, the properties you plan to place in service, and any cost segregation proposals. We will model the 2026 and 2027 thresholds against your facts, including the California side. Book a new client introduction.
LaviCPA is a Los Angeles CPA firm for real estate investors. Shawn Lavi, CPA, is the firm's principal. Elias Lavi, CPA, is its founder and co-owner.